In economics short-run and long-run do not reflect any time period like the concept of short-term and long-term. Economists connect the word short-run as well as long-run or the concept of short-run and long-run with the ability of producers to adjust different factors of production while producing goods and services. Thus, the concept of short-run and long-run both cannot show the exact time period.
When a producer starts a business, mainly the producer has to face issues like lack of resources, and lack of sufficient information about the market. Because of these issues, the producer can not adjust all the factors of production and it has to cope with certain factors with their existing endowment. It means the producer is assumed to be able to adjust only one factor and keep all the other factors as they are/keep fixed.
In this regard, short-run in economics can be defined as a situation or a condition, or a time period in which there is the employment of at least one variable factor and all the other factors remain constant or fixed. It means the producer can change only one factor when it is needed and all the other factors that are used in the production process are kept unchanged. Generally, labor is assumed to be a variable factor and all the other factors are assumed to be constant. This case has been obviously faced by every business while starting the business and its time period may be based on the efficiency of a business firm.
Similarly, after starting a business and with time lapses in doing business, the producer may have sufficient knowledge and information about the market, consumer expectations, and endowment of resources. If all these things are in access to the producer then the producer can adjust all the factors of production as per need and circumstances and producers may not need to cope only with the existing endowments of factors. Therefore, the time period or a situation or a condition that shows that the producer can adjust all the factors and there is nothing like fixed is known as the long-run in the theory of production. It means the situation where the producer can change all the factors immediately if s/he needs then this is referred to as long-run in economics. However, the long-run too is not identify any specific time period. The more efficient firm is, the more quickly it reaches in the long run.
Short-Run vs Long-Run
- The initial refers to the situation of limited resources, time, and information to adjust all the factors but later one refers to the situation of having sufficient resources, information, and time to adjust each and every factor as per need.
- A producer in the short run uses some factors as they are and only one input can be changed but in the long-run producer can change all the factors and there has not been anything like a fixed factor.
- In the short-run production can be changed only by changing variable factors and in the long run, all the factors can be changed to change the output.
- Generally, all the businesses face short-run but long-run is achieved by only the efficient businesses.